Investor protection through MiFID II

The EU has issued a series of new regulations in reaction to the financial crisis of 10 years ago. These are designed to prevent similar market developments in the future and in particular to protect investors from the consequences thereof. One of the most important and most comprehensive set of regulations in this respect is Directive 2014/65/EU, generally known as MiFID II (“Markets in Financial Instruments Directive”). This latter strengthens and complements MiFID I with the objective of enhancing investor protection, creating more transparency on capital markets and minimising conflicts of interest in servicing clients in the case of financial service providers.

MiFID II is to be implemented in full in all EU/EEA locations of VP Bank Group – which means for VP Bank, in Liechtenstein and Luxembourg. In Switzerland, MiFID II is to be applied only for clients domiciled in the EU/EEA.

Reinforcement of investor protection because of MiFID II

Because of MiFID II, VP Bank can further broaden the already high level of consumer protection and thus optimally service the client. A part of the advisory process, investment goals, investment horizon, risk appetite, financial circumstances as well as knowledge and experience are systematically recorded. MiFID II demands from issuers of securities that they recommend for which clients their securities (target market) are suitable. VP Bank matches this data with the client profile also ensuring technically that each investment recommendation is optimally suited to the client.

As a new service and depending on the type of mandate selected, VP Bank actively keeps its clients informed as to significant movements in their portfolios or even at the level of the positions held in the case of leveraged products. As from 1 January 2018, the client receives an advice by regular mail in the case of a decline in value of 10 per cent.

VP Bank guarantees that stock-market orders are executed in the best interest of the client. In doing so, criteria such as price, costs or rapidity of execution are carefully weighed in order to achieve the optimal result.

Regarding costs and products, small investors enjoy maximum protection and a high measure of transparency. Professional clients possess more financial knowledge and may therefore profit from quite a few simplifications which enable them to more rapidly execute orders. VP Bank carefully reviews its clients in order to select with them the optimal profile to match their needs.

MiFID II has the objective of avoiding all conflicts of interest in advisory services and disclosing monetary incentives. VP Bank implements this strategy consistently in the interests of the client.

Increase in transparency

From 2018 onwards, the client benefits from a significantly greater level of transparency in the case of security trades. The most important element is the detailed disclosure to small investors of the costs of a security transaction prior to its execution. In this manner, the client can achieve transparency in a rapid and simple manner and can decide whether the transaction in question is worth it for him/her. Both in investment advisory and the new e-banking services, VP Bank offers this functionality with immediate effect. A level of transparency is thus attained which previously was only possible with great difficulty. Professional clients obtain a standardised transparency over costs in a unique manner in line with the efficient execution of orders.

Once the order is placed, the client continues to receive a confirmation of the trade which, however, is more detailed than previously in relation to trading centres and partial executions. At the end of year, a summary of all costs and fees in addition is provided to all clients.

With immediate effect, VP Bank also offers key product information documents regarding structured, closed and open investment funds, insurance-based products with investment character, instruments issued by special-purpose vehicles as well as forward foreign-currency contracts and precious-metal options. These, in part, complex instruments can thus be explained in a standardised manner using the key information documents. The client can therefore be sure that he can understand correctly the risks and opportunities of the instruments.

Implementation of MiFID ll for cooperation with intermediaries

In implementing MiFID ll, VP Bank classifies intermediaries as professional clients. Professional clients may forego parts of the enhanced investor protection because of their experience. This enables intermediaries to continue to place their orders efficiently and to have them executed in an expeditious manner. In addition, VP Bank offers new exclusive services with which the intermediaries can fulfil their own MiFID ll obligations more easily. Wherever possible and where there is interest in doing so, these services may be further upgraded.

VP Bank has consistently integrated MiFID II into business processes and thus provide its clients with the highest measure of investor protection and transparency. This is important, on the one hand, to continue to keep running costs low and, on the other hand, to follow regulations and standards in a consistent manner. As a result, it is possible for VP Bank to ensure that its business activities continue in a sustainable and profitable manner.